Editorial: Instead of more spending, try fiscal discipline

Thursday

Jul 30, 2009 at 12:01 AMJul 30, 2009 at 10:27 AM

You could say Americans are seeing red with the news that, for the first time, the federal deficit has topped $1 trillion, and with the fiscal year far from over. Before 2009 is done, the deficit could reach $1.8 trillion, quadrupling the former record.

You could say Americans are seeing red with the news that, for the first time, the federal deficit has topped $1 trillion, and with the fiscal year far from over. Before 2009 is done, the deficit could reach $1.8 trillion, quadrupling the former record.

Many folks want to view this development through a partisan lens, of course, but their memories are so short they may be well-advised to seek a doctor's attention. While Democratic President Barack Obama certainly deserves his share of the blame for the spending and for the lack of a coherent, realistic plan to address it, he inherited two-thirds of that red ink - a then-projected $1.2 trillion deficit - the day he stepped foot in the Oval Office back in January. No one is apologizing for Obama; that's just a fact.

It's no surprise what led to this dramatic uptick in debt in the short term: stimulus packages on top of bailout packages, on top of wars on two fronts, on top of a staggering recession that has produced a sharp hike in safety net spending and a wicked decline in tax revenues.

This opinion page is as concerned now as Peoria Journal Star editors have been for at least three decades, well before former Vice President Dick Cheney's reported assertion that "Reagan proved deficits don't matter" - a theme interestingly being repeated by some liberal economists today. Except when deficits do matter, with the nation's debt as a percentage of gross domestic product - a good barometer of how much is too much - fast approaching record World War II levels.

That has real implications, even if Americans don't often immediately grasp them. First, the red ink is an economic growth killer that arguably will do little or nothing to restore the jobs millions of Americans have lost in the last year, effectively working at cross purposes with those stimulus packages, certainly over the long term.

Indeed, interest payments on the national debt - the year-after-year accumulation of those deficits - were $452 billion last year. Only Medicare-Medicaid, Social Security and defense are bigger expenditures. That's money not invested in the present and the future but on trying to play an impossible game of catch-up with our past. Imagine still paying on a shirt you bought 20 years ago that you gave to Goodwill back in 1999, and you get an idea of how self-defeating this is.

Meanwhile, with the public sector crowding the private sector out of the borrowing market and foreign lenders - namely China - getting skittish about buying into any more of America's lack of fiscal discipline without more incentive to do so, interest rates seem almost certain to climb. That in turn can accelerate inflation, which combined with substantial unemployment and elevated taxes to compensate for the decline in government revenues, can be a knockout.

Certainly one can make an argument, as some prominent economists do, that this government spending was a necessary shot of adrenaline to a failing-fast economy, the only thing preventing this Great Recession from becoming the Great Depression II. And if we were starting from a blank slate with a relatively healthy balance sheet, we might feel more confident in that school of thought. But the federal debt is at $11.6 trillion and climbing and threatening to blot out the sun. Meanwhile - forget health care reform for a moment - we haven't even witnessed the full brunt of Baby Boomer retirements on entitlement spending.

And so we welcome the Johnny-Come-Latelies aboard the deficit hawk train, though frankly we've grown weary of the partisan finger-pointing. We've written this before, but it bears repeating. From where we sit there is absolutely no difference between Democrats and Republicans where it comes to spending, except in this regard: Democrats like to tax and spend, while Republicans borrow and spend. At some threshold both become grotesquely irresponsible.

The live-for-today, to-hell-with-tomorrow mindset that has dominated Washington must come to an end. Yet we cannot help but notice that, with only a fraction of the money from the last stimulus package currently circulating through the economy - less than 20 percent - Congress is already talking up another.

Sometimes you just have to know when to say when, to recognize you've done what you can and maybe the wisest course is to sit back and see what happens. Home prices have begun to rise again, we've gotten some encouraging news on the corporate earnings front and the Dow recently topped 9,000 for the first time in a while. We'd suggest we're at that point.

Peoria Journal Star

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